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Credit and entrepreneurs’ income

Author

Listed:
  • Manthos Delis

    (Audencia Business School)

  • Fulvia Fringuellotti
  • Maria Iosifidi

    (Groupe Sup de Co Montpellier (GSCM) - Montpellier Business School)

  • Steven Ongena

    (University of Zürich, Swiss Finance Institute, Katholieke Universiteit Leuven, NTNU Business School, and CEPR)

Abstract

Small business entrepreneurs facing credit constraints may experience significantly different future income trajectories compared to their unconstrained counterparts. We quantify this difference using uniquely detailed loan application data and a regression discontinuity design based on a bank's credit score cutoff rule employed in the loan approval process. Our findings indicate that loan acceptance increases recipients' real income by 11 % five years later compared to rejected applicants. This effect persists across a wide range of robustness tests and is primarily driven by the utilization of borrowed funds for profitable investments, as captured by the bank's ex-ante soft information and the ex-post firm performance. Additionally, within the cohort of accepted applicants, future income is higher for those who were easily accepted compared to marginally accepted borrowers with similar creditworthiness, highlighting the important efficiency effects of loan usage.

Suggested Citation

  • Manthos Delis & Fulvia Fringuellotti & Maria Iosifidi & Steven Ongena, 2025. "Credit and entrepreneurs’ income," Post-Print hal-05236566, HAL.
    • Handle: RePEc:hal:journl:hal-05236566
    DOI: 10.1016/j.jfi.2025.101161
    as

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    Keywords

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    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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